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700 Years of Government Bond Yields

Tyler Durden's picture


With the world almost in total agreement that rates can only go up, that the 30-year bull market in rates is over and a return to "normal" rates is timely, perhaps a glance at the following chart of 700 years of government bond yields will enlighten a little as to where the anomalies and what the "normal" is. All too often investors are caught up in their cognitive dissonance-driving recency bias when a bigger picture may just help those who always proclaim to invest for the long-term.

Via Ralph Dillon of Global Financial Data,

It is fascinating to look at where we have been over the years and compare it to today’s markets. In looking at the data, you are trying to identify trends that will help you prepare for opportunities that the future holds. Sometimes you find similarities and sometimes you find differences with the data you are analyzing. That’s what makes it interesting. What never changes, is the fact that for centuries Governments have issued debt and paid interest on that debt.

How much interest they pay has certainly fluctuated throughout the years as demonstrated by the chart below.


But what if we have a window that can peer into the past and see what interest rates have done not for 100 or 200 years, but for 700!  To do so, you just have to follow the changing center of financial power.

Over the past eight centuries, the locus of economic power has gradually shifted from Italy to Spain to the Netherlands to Great Britain and currently to the United States.   The country at the center of the world’s power and economy issues bonds to cover expenses.  Investors in that country and abroad purchase the bonds because they represent the safest bonds that are available for investment.

The country at the center of economic power can issue more bonds at a lower cost because of the lower risk of the world’s economic center.  Over time, power ebbs away from that country and investors begin placing their money in the bonds of the new world economic power. Italy was the center of the western economic world until the 1500s. Until then, the Mediterranean was the gateway to Byzantium, the Middle East, and through those countries, to India and China. 

The Italian city-states of Venice, Genoa, Florence and others grew from this trade, but also fought wars against each other requiring funds for those wars. By the 1600s, the nexus of economic power had shifted to the Netherlands as trade in the Atlantic and with northern Europe enabled the Dutch to strengthen their role in the global economy.  The surplus of capital in the Netherlands is illustrated by the fact that Tulipmania, the world’s first bubble, which occurred in the Netherlands in the 1630s.

The Netherlands was too small to maintain its role as the center of the global economy for long, and the combination of trade, and commercial and industrial revolutions moved the center of economic power to Great Britain at the end of the 1600s. 

The Glorious Revolution of 1688 realigned political power in England and put Britain on a sound economic footing that enabled it to remain the center of world economic and political power until 1914. After World War I, the center of economic power clearly shifted from London to New York and today, New York remains the center of the global economy.  The Dollar is the world’s reserve currency, a fact that enables Washington to issue bonds at a lower cost than would otherwise be the case.

Global Financial Data has put together an index of Government Bond yields that uses bonds from each of these centers of economic power over time to trace the course of interest rates over the past seven centuries.  From 1285 to 1600, Italian bonds are used.   Data are available for the Prestiti of Venice from 1285 to 1303 and from 1408 to 1500 while data from 1304 to 1407 use the Consolidated Bonds of Genoa and the Juros of Italy from 1520 to 1598.

General Government Bonds from the Netherlands are used from 1606 to 1699.   Yields from Britain are used from 1700 to 1914, using yields on Million Bank stock (which invested in government securities) from 1700 to 1728 and British Consols from 1729 to 1918.  From 1919 to date, the yield on US 10-year bond is used.

Below is a chart that reflects 700 years of Long Term Government Bond Yields to 1285:


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Fri, 12/06/2013 - 19:00 | Link to Comment HedgeAccordingly
HedgeAccordingly's picture

what about 6 months of Bitcoin Yields? 

Fri, 12/06/2013 - 19:03 | Link to Comment fonzannoon
fonzannoon's picture

Yup Mike Maloney has said how many times that bonds have been money for centuries.


Fri, 12/06/2013 - 19:17 | Link to Comment Dear Infinity
Dear Infinity's picture

Can you imagine the distraught of the Baby Boomers when their fixed-income portfolio experiences a 50% draw down? This is generational destruction.. 

Ten-year yield is creeping up to 3% very quickly now...

Fri, 12/06/2013 - 20:33 | Link to Comment AlaricBalth
AlaricBalth's picture

Is it even possible to creep quickly?
I always thought creeping was slow and methodical, in order to evade being noticed.

I did give you a green for fooling me into hitting the link to your website.
As GW Bush once so eloquently stated, "fool me once, shame on - shame on you. Fool me - you can't get fooled again."

Fri, 12/06/2013 - 20:27 | Link to Comment negative rates
negative rates's picture

We are going from historically low rates today,  to hysterical low rates tomorrow.

Fri, 12/06/2013 - 21:01 | Link to Comment ZH Snob
ZH Snob's picture

we are so accustomed to viewing debt as money that it is nearly impossible to imagine a day of reckoning when all debts are called in and settled once and for all (to the detriment of most), and debt is no longer a secure and smart investment but is instead a dirty and exposed fraud.

I believe that day is coming soon. 

Sat, 12/07/2013 - 15:50 | Link to Comment Occident Mortal
Occident Mortal's picture

It looks to me like the yield is inversely related to the number of men killed in war.

Low rates = war ?

War = low rates ?

Fri, 12/06/2013 - 20:31 | Link to Comment negative rates
negative rates's picture

They used to write on rice paper and once the 50 year duration was up, so was the ink on the paper, so  they had to default and start over every 50 years forgiving the debt. Then one day somebody made ink that lasted longer and now instead of the forgivng fifties, we have the compounded hundreds that still need to be addressed to this day. Can you say derivatives?

Fri, 12/06/2013 - 19:04 | Link to Comment Black Forest
Black Forest's picture

Great ZH report. Thanks.

Fri, 12/06/2013 - 19:07 | Link to Comment fonzannoon
fonzannoon's picture

what were Rome's yields right before the dark ages? Is that on here? My buddy traded credit back then. He said shit was off the hook.

Fri, 12/06/2013 - 19:29 | Link to Comment DaddyO
DaddyO's picture


Their yields have always been high, gave them the need to have their own bank. My uncle used to trade young, nubile eunuchs to the Vatican back in the middle of the dark ages, he couldn't keep'em in stock.


Fri, 12/06/2013 - 20:42 | Link to Comment AlaricBalth
AlaricBalth's picture


I happen to know someone very dear to my heart who was responsible for Rome defaulting on its sovereign debt.

...quod erat demonstrandum...!!!

Fri, 12/06/2013 - 20:54 | Link to Comment Tijuana Donkey Show
Tijuana Donkey Show's picture

If I recall, you also demanded a shitload of pepper at the time.

Fri, 12/06/2013 - 21:16 | Link to Comment AlaricBalth
AlaricBalth's picture

That was for the pepper spray to keep the masses from trying to recover the 5000 pounds of gold we expropriated from Rome.

Fri, 12/06/2013 - 20:09 | Link to Comment Yen Cross
Yen Cross's picture

    Fonz! greenie for you... The gladiators settled debts for the senate before the lions and tigers tore them limb from limb...

Fri, 12/06/2013 - 19:14 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

Now I know exactly how to time this fucker, down to the century.

Fri, 12/06/2013 - 19:27 | Link to Comment bigrooster
bigrooster's picture

Let me guess...Japan is fucked first?

As much as I believe that TSwillHTF in the US I have to believe that Japan blows up first.  Alright I admit that is because Kyle Bass told me so, and he is one smart motherfucker!

So when the JPY goes to shit that is a sign it is time to hunker down and lock and load.

Fri, 12/06/2013 - 21:09 | Link to Comment Mike2756
Mike2756's picture

My thought as well, primed for a violent move.

Fri, 12/06/2013 - 22:02 | Link to Comment BooMushroom
BooMushroom's picture

Ask the good folks at NANEX how much time you have between JPY's crash and the USD's.

Sat, 12/07/2013 - 18:38 | Link to Comment Oracle 911
Oracle 911's picture

Japan first, than PIGS/EU and after that USA.


Mark my words.

Fri, 12/06/2013 - 19:29 | Link to Comment DonutBoy
DonutBoy's picture

I take the point, a sub 3% 10-yr is not extraordinary.  The first chart has a different message for me.  Yields began to climb when the US public lost the legal right to own hard currency, accelerated when the gold window was closed to foreign governments, and would have exploded but for Paul Volcker.  We're living in the Volcker life-extension of this version of the Bretton-Woods scheme transmuted into a pure fiat currency regime.  The longer-term chart is interesting - but there is "selection bias".  Once a currency collapses - it's no longer the basis for the long-term rate.  So it's more or less a synthetic yield on the strongest currency.

Fri, 12/06/2013 - 20:03 | Link to Comment brown_hornet
brown_hornet's picture

What is the y-axis on that bottom chart supposed to be?

Fri, 12/06/2013 - 22:45 | Link to Comment SKY85hawk
SKY85hawk's picture

good question!

the Hoo-Hess-of-Hay didn't exist before 1776, or so.



Fri, 12/06/2013 - 20:11 | Link to Comment brown_hornet
brown_hornet's picture

Anyway, it looks like Isabella said "I ain't gettin enuff juice from these chislen Spanish banksters. I'm gonna go for some yield with that Genoan IPO."

Fri, 12/06/2013 - 20:22 | Link to Comment Ausmerican77
Ausmerican77's picture

I thought the purpose of the Central Banks was to bring stability? Since their inception its been quite volatile



Fri, 12/06/2013 - 22:17 | Link to Comment Yen Cross
Yen Cross's picture

 Kevin Henry? ---testing---Kevin Henry/  pushing buttons<

Fri, 12/06/2013 - 22:17 | Link to Comment CunnyFunt
CunnyFunt's picture

Damn! The desertion of Burgundy certainly took its toll!

Fri, 12/06/2013 - 22:18 | Link to Comment Yen Cross
Yen Cross's picture

 Nice new avatar Cunny

Fri, 12/06/2013 - 22:21 | Link to Comment CunnyFunt
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Lol, I look like a right dork.

Fri, 12/06/2013 - 22:49 | Link to Comment SKY85hawk
SKY85hawk's picture

Enny one care to comment on the 1,500 pip increase in t-bond yield, since june 2013?

huh,  do you all work for the gummint?



Sat, 12/07/2013 - 12:33 | Link to Comment autofixer
autofixer's picture

It looks to me as if we can bounce along at the bottom for another 300 years.  I'll worry about rising bond prices then. 

Sat, 12/07/2013 - 16:04 | Link to Comment withglee
withglee's picture

I'd like to see a chart of defaults over the same period since a properly managed medium of exchange (MOE) requires that interest collections exactly equal defaults experienced, in that way guaranteeing inflation of the MOE to be zero.

Just the fact that no such chart can be produced (there is no recorded data) is proof we've never had a properly managed MOE.

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